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Deduction Regulations FAQs - Child Support

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This article contains questions and answers about Child Support deduction regulations and practices. 

 

The information in this article is referenced directly from the U.S. Department of Health and Human Services site http://www.acf.hhs.gov/programs/css/resource/processing-an-income-withholding-order-or-notice 

 

This content is for informational or instructional purposes only. This content is referenced from an external website and may be changed or superseded without notice. It is not part of any Avionté product or services warranty.

 

Visit the Employee Payroll - Deduction help article for specific deduction instructions in Avionté.

 

FAQs

Is there a priority in which deductions must be withheld?

A child support IWO (Income Withholding) must be paid before all other garnishments, with one exception: a federal (IRS) tax levy entered prior to the underlying child support order. The date that the child support order is established determines precedence, not the date the IWO is served on the employer.

 

Not only must child support be paid first, but a higher percentage of the employee's disposable income may be withheld for child support than for other garnishments. The employer deducts the specified amount of child support each pay period and sends it to the state disbursement unit (SDU), which then forwards the payment to the custodial party.

 

 

How is income defined?

Income is defined as any periodic form of payment due to an individual, regardless of source, including wages and salaries, commissions, bonuses, workers' compensation, disability, payments pursuant to a pension or retirement program and interest.

 

 

How is child support processed?

Upon receipt of the Income Withholding for Support (IWO), the employer should:

  1. Document the date of receipt.

  2. Determine if the order is "regular on its face." See "Note" in the first box on Page One of the IWO form. If the IWO does not direct payments to the SDU, it is not regular on its face and must be returned to the sender. Page One of the instructions gives additional information on when to return an order that is not regular on its face. If the IWO is not regular on its face for any of the reasons listed, the employer must check the box "Return to Sender" on Page Two and return the IWO to the sender.

  3. A copy of the underlying child support order allowing income withholding must be attached if the IWO is not sent by a court or child support agency. If the child support order should be attached but is not, return the IWO to the sender.

  4. Give a copy of the IWO to the employee if the IWO has been issued by another state.

  5. Follow the terms of the order.

Only the employee has the right to dispute the terms of a child support IWO and should do so by contacting the issuing agency or tribunal. The employer cannot contest the income withholding order; however, the employer must contact the issuing agency if unable to implement the withholding because a withholding for current support is already in place for the child and employee. See "Special Situations" below. If the employee has been terminated, the employer must report that termination by returning Page Three of the IWO to the sender.

Follow the law of the issuing state regarding:

  • Duration and amount of child support, both current and arrears
  • Medical support terms
  • Where to remit payments
  • Payment of fees and costs charged (if any) by the child support enforcement agency, issuing court or custodial party's attorney


Follow the law of the employee's principal place of employment regarding:

State law provides for fines against an employer who discharges from employment, refuses to hire or takes disciplinary action against an employee in response to withholding.

  • When to begin withholding
  • When to remit payments (this may be from 1 to 7 days after payday)
  • Mandatory deductions
  • Maximum amount to be withheld (within Consumer Credit Protection Act limits)
  • How to allocate withholding across multiple child support orders
  • Administrative fee that employer is permitted to charge
  • Other terms and conditions that may be set by state law

 

 

How are withholding calculations determined?

There are two steps to determine how much to withhold for child support from an employee's income: calculating disposable income and calculating allowable disposable income.

  1. Disposable Income = gross pay - mandatory deductions.
    • Disposable income is the amount of earnings remaining after subtracting certain mandatory deductions from an employee's gross pay.

    • Mandatory deductions include: federal, state and local taxes; unemployment insurance; workers' compensation insurance; state employee retirement deductions; other deductions determined by state law.

    • Note that disposable income is not necessarily the same as net pay. An employee may have a deduction taken from his pay that is not mandatory, such as union dues or a car loan payment.


  2. Allowable Disposable Income = disposable income x CCPA % limit
    • Allowable disposable income is the maximum available for child support withholding. In most cases, the amount ordered to be withheld will be less than the allowable disposable income amount, and the ordered amount can be withheld without any problem. Even if the withholding order specifies a higher payment, the allowable disposable income is the most that may be withheld.

    • The Federal Consumer Credit Protection Act (CCPA) sets limits on withholding an employee-parent's disposable income based on his/her current family situation and child support payment history. The CCPA protects the employee from having an excessive amount withheld. (Some states have enacted laws that provide even more protection to the employee-parent's income, although most states follow the federal limits.

    • The withholding limits set by the federal CCPA are as follows:
      • 50% - Supports a second family, with no arrearage or less than 12 weeks in arrears
      • 55% - Supports a second family, and more than 12 weeks in arrears
      • 60% - Single, with no arrearage or less than 12 weeks in arrears
      • 65% - Single, and is more than 12 weeks in arrears

(A second family means there is a spouse and/or child for whom the employee has responsibility. "In arrears" means there is past due, unpaid support owed by the noncustodial parent.)

 

 

Child Support Withholding Examples

Allowable Disposable Income

There are two steps to calculate child support withholding:

  1. Gross income - mandatory deductions = disposable income
  2. Disposable income x CCPA % limit = allowable disposable income

If allowable disposable income ≥ ordered amount, then withhold ordered amount.

If allowable disposable income < ordered amount, see Special Situations-Not Enough Money below.

  • Weekly gross pay is $760
  • Weekly child support due is $295
  • Mandatory deductions total $151
  • Employee-parent is single and does not owe back child support

The law of the state where the employee works (the "principal place of employment" state) determines which deductions are mandatory. In some states, the example below would change because things such as health insurance and union dues are mandatory deductions.

Note the following differences between net pay and disposable income in this example. The amount of disposable income, $609, is used to determine child support withholding limits, rather than the net pay, $469.

 

Disposable Income

Net Pay

Gross pay

$760.00

$760.00

Federal income tax

(95.00)

(95.00)

FICA

(45.00)

(45.00)

Medicare

(11.00)

(11.00)

Health insurance (pre-tax)

 

(25.00)

Union dues

   
     

Savings bonds

 

(25.00)

Union pension

 

(30.00)

Credit union car loan

 

(50.00)

 

$609.00

$469.00


 

  • Gross pay - mandatory deductions = disposable income: 
    760 - $151 = $609
  • Disposable income x CCPA % limit = allowable disposable income: 
    609 x 60% = 365.40
    • Note that 60% is the applicable CCPA limit because the employee/parent is not supporting a second family and does not owe any back child support. Allowable disposable income is the maximum available for child support withholding. Allowable disposable income (from Step 2 above) is $365.40.
  • $365.40 > $295.00, so the full $295 is withheld for child support

If you take the same example but increase the weekly child support payment to $400, you cannot withhold the full amount due. You may only withhold a maximum of $365.40. This means that the employee will fall behind by $34.60 and will be "in arrears." Some states charge interest on the overdue amounts. The employee has the option of paying the underpaid amount directly to the issuing agency if he or she does not want to fall into arrears.

 

Pre-Tax Deduction

Pre-tax deductions (e.g., 401(k) plan contributions) are adjustments to earned income before taxes are deducted, thus reducing an employee's taxable earnings. Although the employee voluntarily elected to trade current disposable income for a deferred benefit, there is no reason to deny a portion of this income to his or her child.

In calculating disposable income for child support, pre-tax deductions must be added to the employee's taxable wages before determining the obligated employee's allowable disposable income.

Gross pay

$1,000

Deduct 401(k) contribution pre-tax deduction

($100)

Taxable earnings

$900

Deduct mandatory deductions

($250)

Net pay

$650

Add back pre-tax deduction

$100

Disposable earnings

$750


 

Value of Fringe/Non-cash Benefits

The value of fringe benefits such as a take-home vehicle, free parking space, or other non-cash benefit is subject to taxation but is not considered "income" for the purpose of calculation of disposable income for child support purposes.

In calculating disposable income for child support, the value of fringe benefits must be subtracted from the employee's gross pay before determining the obligated employee's allowable disposable income.

Gross pay

$1,000

Add value of take-home vehicle

$300

Taxable earnings

$1,300

Deduct mandatory deductions

($350)

Net pay

$950

Subtract value of take-home vehicle from net pay

($300)

Disposable earnings

$650


 

Special Situations

Multiple Income Withholding Orders - Same Employee and Same Child

There should not be more than one withholding order for current support for a child. There may be more than one withholding order for a child if only one order has a current support amount due. The issuing agencies, not the employer, are responsible for resolving any duplication. The employer receiving a duplicate withholding order should follow these steps:

  • Continue to honor the first order received.
  • Give your employee a copy of the second order.
  • Contact the issuing agency that sent the second withholding order and inform it that you are already sending withheld payments for the same child to another jurisdiction. Provide payment information such as the amount of the withholding and where the withholding is being sent.
  • Contact the issuing agency that sent the first withholding order and inform it of the second order.


Multiple Income Withholding Orders - Same Employee and Different Children

Federal regulations require that some money must be paid to each order for current support if there is more than one withholding order for the same employee. In addition, states have enacted laws specifying the method for allocating money toward current support due for each order. Thus, some money must be allocated toward all current support orders. The orders should not be paid on a "first come, first served" basis.

Not Enough Money to Withhold Full Ordered Amount

If there is enough allowable disposable income to pay multiple orders, the employer should pay the full amount of current support due for each order. Sometimes, however, an employee's earnings do not stretch far enough to pay all his or her obligations. If there is not enough allowable disposable income, the allocation method of the employee's principal state of employment must be followed to determine how much to pay on each order.

Example:

  • Order A current support owed: $ 90/month
    Arrears owed: $ 15/month
  • Order B current support owed: $ 75/month
  • Order C current support owed: $ 62/month
  • Employee's disposable income: $300/month
  • Assume allowable disposable income is $180

Withholding:

  • Total current support owed: $227/month
  • Total arrears owed: $ 15/month
  • The allowable disposable income ($180) is not enough to withhold the entire amount of current support due for these three orders ($227). Nothing may be withheld to satisfy the arrearage.

Allocation Methods:

States use one of two methods to allocate withheld payments among multiple withholding orders:

 

Method 1: Pro-rate by allocating a percentage to each order based on the total dollar amount of current support orders.

  • Add total current support due on all withholding orders.
  • Divide each order's current support due by the total of all orders to figure each order's percentage of total.
  • Withhold the percentage of allowable disposable income for each order.

Order A

$90.00 ÷ 227 =

39.65%

Order B

$75.00 ÷ 227 =

33.04%

Order C

$62.00 ÷ 227 =

27.31%

Total

$227.00 =

100.00%




Allowable disposable income (maximum that may be withheld): $180

Order A

$180 x 39.65% =

$71.37

Order B

$180 x 33.04% =

$59.47

Order C

$180 x 27.31% =

$49.16

Total withheld

 

$180.00



Method 2: Share equally by dividing the allowable disposable income by the total number of orders.

  • Allowable disposable income (maximum that may be withheld): $180
  • 3 orders for the same employee (Orders A, B and C)
  • 180 ÷ 3 = $60 paid to each order

The prorate method is used by 49 states/territories; the equal method is used by six states/territories. See the State Income Withholding Information matrix for more information.


IRS Tax Levy and Child Support

An IRS tax levy takes precedence over a child support withholding order only if the tax levy was entered before the child support order was established. The priority determination between a child support withholding order and an IRS tax levy depends on the date that the original child support order was established. Remember that the child support order is the order on which the income withholding order is based.

The employer usually is not informed of the original order date. Therefore, the following action is recommended:

  • If a child support IWO is received for an employee who already has a federal tax levy in place, contact the issuing child support agency about this situation. The child support agency can then contact the IRS to discuss an alternate payment plan.
  • If a federal tax levy is received for an employee who already has a child support withholding order in place, contact the IRS and tell them a withholding order is already being honored. The IRS may then elect to contact the issuing child support agency.

A federal tax levy is the only deduction that takes precedence over child support. Remember that child support should always be withheld before the following voluntary and involuntary deductions:

  • Assignment of wages
  • Non-tax federal debt
  • State and local tax levies
  • Creditor garnishment

Other Garnishments and Child Support

Guidelines: A child support IWO must be paid before all other garnishments. When you have a child support IWO and a garnishment for your employee:

  1. Deduct the child support withholding.

  2. Determine the lesser amount of:

    1. The difference between the weekly disposable income (before the child support withholding) and 30 times the minimum wage
      [30 x $7.25 = $217.50]
      • If the income is paid biweekly, multiply the minimum wage times 60
        [60 x $7.25 = $435].
      • If the biweekly disposable income is less than $435 or the weekly income is less than $217.50, no withholding for garnishment may be made.

    2. 25% of the weekly disposable income.

  3. For the garnishment, you may withhold the amount remaining after the child support deduction up to the lesser amount figured in step (2) above.

Example A: Tony's child support withholding obligation is $180.00/week. His weekly disposable income is $700. Sears serves a garnishment against Tony for a $1,000 debt.

  1. Deduct $180 for child support from Tony's $700 pay (Tony is single and is not in arrears, so up to 60%, or $420, may be withheld for child support.)

  2. Determine the lesser of:
    1. Disposable income minus 30 times minimum wage:
      $700 - $217.50 = $428.50
    2. 25% of disposable income: 25% x $700 = $175
      $175 is the lesser of these two amounts.

  3. Difference between allowed amount for garnishment and the child support deduction taken:
    $175 - $180 = -$5
    The child support deduction of $180 has already exceeded the allowed amount for garnishment; therefore nothing may be withheld for Tony's Sears garnishment.

 

Example B: Tony's child support withholding obligation is $140/week. His weekly disposable income is $1,000. Sears serves a garnishment against Tony for a $1,000 debt.

  1. Deduct $140 for child support from Tony's $1,000 pay (Tony is single and is not in arrears, so up to 60%, or $600, may be withheld for child support)

  2. Determine the lesser of:
    1. Disposable income minus 30 times minimum wage:
      $1000 - $217.50 = $752.50
    2. 25% of disposable income: 25% x $1000 = $250
      $250 is the lesser of these two amounts

  3. Difference between allowed amount for garnishment and the child support deduction taken:
    $250 - $140 = $110
    $110 can be withheld for Tony's Sears garnishment.

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